May 14, 2013

Or your money back

Prime Minister John Key yesterday claimed public support for his pokies-for-national convention centre deal as the Opposition reacted angrily to a 35-year compensation clause which protects the casino against future law changes.

The Government yesterday signed an initial agreement under which SkyCity will build and entirely fund a $402 million 3500-place international convention centre. In return, the casino company is allowed 230 new pokie machines and other concessions that are worth up to $527 million over the life of the deal.

Crucially, SkyCity gets its licence extended to 2048 and until then, if any future Government changes gambling laws and affects the profits the company gets from its new concessions, the taxpayer will have to pay compensation.

Again, National introduces an exciting new tactic into New Zealand politics that left-wing parties could have a field day with. How about stringent pro-worker labour laws where trade unions get paid massive compensations if a subsequent government changes them? Or environmental policies with multi-billion dollar pay-outs to Greenpeace if a future National government wants to open new coal mines or offshore oil platforms?

This part of the Sky arrangement seems pretty daft to me. National really needed to look like they negotiated hard and hammered out a tough deal with Sky, and this blows that perception out of the water. A thirty five year compensation clause? It makes them look like they rolled over for yet another multi-national, while a future government can just legislate the clause away at no political cost.

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You’re just hatin’ on Joyce and Key’s awesome negotiation skills. They’re so smart they didn’t even need an open bidding process, they knew SkyCity was the one. It was just a matter of letting them name their price and then agreeing on it.

It reminds me quite a lot of Melbourne (where I’ve spent some time living) and the 1990s deal which the Victorian government made to get Transurban to build the City Link toll road around the city, which could make a comparable case study for this sort of thing. City Link is now raking in the cash at rates like AU$5.20 for every car travelling between the CBD and the airport. Last financial year it averaged an AU$1.2 million profit every day. A highlight of the deal is that for 34 years, the state government is required to compensate City Link for any legislative or infrastructure changes which might reduce the road’s traffic flow. eg. Things like reducing available parking in and around the city, any significant changes that might encourage more people to use public transport (like subsidising it), or introducing any service that might have “a detrimental effect” on CityLink’s financial performance. It’s quite restrictive on what the government’s allowed to do towards discouraging private vehicle use, if that’s what it might want to do, until about the late 2020s or so. Some people like the flashy road, though.

There’s a myth that the deal also prevents an airport link train, but supposedly they were smart enough with that part of the deal and it’s only an issue if such trains are allowed to carry freight.

It’s a staggeringly horrible deal for New Zealanders. In return for a white elephant convention centre with a dubious (at best) business case we give Sky City the right to have even more pokie machines and a guaranteed licence to print money for 35 years? This is what National’s mad negotiation skillz get us? I’d be fascnitated to see SKy City’s political donations over the last few years…

Note Joyce’s comparison of the SkyCity deal with the Auckland Core Rail Link is only even remotely relevant if the project is to be a PPP. Something you’re not telling us, Stevie boy? And did your parents not teach you there’s a moral difference between gambling concessions and a public transit project?

It’s not often a government literally sells out an entire generation. My kids will be older than I am now when this thing expires.

By the way, this is the sort of thing that should be fueling a debate about our constitution. Would an Upper House allow the House of Representatives to stomp all over the independance of future governments? I’d hope not!

Conrad, SkyCity have given money to all the major parties in Parliament, except the Greens (who’ve refused to take their money in the past). They even gave money to Jim Anderton’s Progressives, at one stage. It’s a cheap investment.

Sacha, tobacco companies don’t need to. Their negotiation interests are being protected by the US in secret TPPA negotiations. Once that agreement is signed, we give away our rights to make legislation that will harm any interest held by foreign investors. We’re lining up in the hope that Fonterra can get slightly better access to the US – there appears to be no other reason.

Once we sign such agreements we can still make legislation. We’re just compelled to pay investors for all of the losses (real and paper) they accrue due to any change in our law.

It isn’t legally binding. What Joyce et al. are relying on is business and their media buddies making a huge song and dance that such a law change would be ‘the worst thing ever to happen for business’ (ala NZ Power). In that way they can ensure that any law change would not be without political cost, reducing the chances of future governments actual doing so.

What Joyce et al. are relying on is business and their media buddies making a huge song and dance that such a law change would be ‘the worst thing ever to happen for business’ (ala NZ Power). In that way they can ensure that any law change would not be without political cost, reducing the chances of future governments actual doing so.

The threat of a “summer of discontent” was enough to get the Clark-Anderton Government to back down on a lot of potential policy. What has changed since then is the balance between caucus and the membership in Labour, which is currently going through rebalancing and reform. That shift is one of the reasons they’ve started to take stronger positions on many issues in the last 6 months.

One of the few certainties about legislation in NZ is that legislation passed by the current government doesn’t, can’t and shouldn’t bind future governments. If Key and Joyce have promised Sky City that they can bind future governments and Sky City are such schmucks as to believe them, maybe Key and Joyce are slick negotiators after all (although I suspect the actual situation is more as described by wtl in comment 11).

Perhaps someone well-informed with ear to the ground and nose to the grindstone could put his shoulder to the wheel and give us an apologist’s view of the benefits that are about to accrue? NeilM, where are you when we need you?

It’s a terrible deal for the country, but it’s pretty effective short-term politics by the Joyce gang. They know how easily spooked Labour are by mythical dragons. Invoke “responsible government” and you can be as irresponsible as you like.

All National have to do is point at Shearer, say “Whatcha gonna do about it, eh?”. He’s got nothing.

SkyCity will build and entirely fund a $402 million 3500-place international convention centre. In return, the casino company is allowed 230 new pokie machines and other concessions that are worth up to $527 million over the life of the deal [which is 35 years].

Assuming 5% discount rate for both the investment and the concessions:
Net present value of $402m repaid over 10 years (through, say, a long term bond issue) : $310.4m
Net present value of $527m of concessions received evenly over 35 years: $246.6m

>It reminds me quite a lot of Melbourne (where I’ve spent some time living) and the 1990s deal which the Victorian government made to get Transurban to build the City Link toll road around the city, which could make a comparable case study for this sort of thing. City Link is now raking in the cash at rates like AU$5.20 for every car travelling between the CBD and the airport. Last financial year it averaged an AU$1.2 million profit every day.

That happened when I lived there and it fucked me off so much, especially because the road to the Airport was built on ratepayer dime well in advance of Transurban getting the deal. I used it for years for free, then one day, it was tolled. So I was paying a toll not to build the damned road, but to build the other roads they had, which I seldom used. And the tolls were administered by a fuxored system that you had to pay in advance for. So added to my monthly bills was a new bill, a new account I had to maintain, in which I paid for the right to use roads that had previously been free.

BW, at least the tolls encourage you on to public transport, so that you don’t, you know, cause global warming and stuff.

Sorry couldn’t help it. Taxes like tolls and carbon tax are DESIGNED to modify behaviour, so quit complaining.
I was in London when the congestion charge came in. Couriers, taxis, tradesmen were all up in arms about it before it came in. Afterwards, they shut up because the roads were clear and parking was easy, and the charge was simply passed onto the client, who expected to be charged for it anyway.

My challenge to the greens and labour is this. If you truly believe that adding 300 porkies is the end of the world .why stop at 300 get rid of all pokies machines .But we all know that wont happen the Green Party talk about mandates last time I looked 90% of the country wouldn’t trust them to run a piss up in a brewery

It is unfortunate that we now have an opposition with such a flagrant disregard for the rule of law, that businesses now see such clauses as of value when dealing with the government. Turei and Norman are about a quarter turn of the dial away from Chavez right now.

Phil, the main issue is not that the SkyCity benefits from a government contract. That is fair enough. The two issues are a) whether the NZ government need to fund a larger convention centre at all, and that b) SkyCity’s benefit comes at a great cost to New Zealand (in terms of gambling addiction and the consequent health/social services that will be required to pick up the pieces).

Fist, the problem is Melbourne is that the tolls can’t push people onto public transport, because there is no PT alternative. The airport is a nice simple example – your choice is the SkyBus from Southern Cross Station ($15 each way) or a taxi. The bus is more than slightly ridiculous for anyone living north of Southern Cross Station, as it takes longer and costs more to go south to the station then north to the airport than it does to take a taxi direct (in our case, ~20 minutes by taxi or over an hour by train/SkyBus).

The train line to the airport is a bit like the one to Auckland Airport – the only time it is discussed is when it’s ruled out.

“as it takes longer and costs more to go south to the station then north to the airport than it does to take a taxi direct ”

Um, that’s the thing about public transport v taxi/car: a slight inconvenience. At least you don’t have to pay for parking if you take the bus (and from memory isn’t it $20 one way, but $23 for a return ticket?)

SkyCity’s benefit comes at a great cost to New Zealand (in terms of gambling addiction and the consequent health/social services that will be required to pick up the pieces).

Well, they do pay taxes on the profit and (as far as I know) contribute toward various problem gambling initiatives and foundations. They’re also presumably going to hire more staff.

I’d be hesitant to jump on the more pokies = more problem gambling (which you don’t say explicilty, but I’m reading into your comments) as there are plenty of ways for the problem gamblers in NZ to part with their money already. Adding and extra 230 pokie machines under the same roof as the existing ones doesn’t do anything to “improve” access to gambling.

Phil – the Problem Gambling Foundation fella claimed on Nat Radio that 80% of the problem gamblers they see are hooked on pokies, not Lotto, horsies, etc. Hence the concern over increased pokies. Not to mention the corrupt process Key ran, etc.

43.Phil – the Problem Gambling Foundation fella claimed on Nat Radio that 80% of the problem gamblers they see are hooked on pokies, not Lotto, horsies, etc. Hence the concern over increased pokies.

I don’t dispute that pokies are part of the problem-gambling problem. What I would dispute, however, is that adding 230 more machines to a location that already has 1,600 under its roof is going to increase the number of people identified as ‘problem gamblers’.
To reword what I said above – if you’re a problem gambler in Auckland, you’re probably already at SkyCity. If you don’t have a gambling problem, then you’re not going to develop one because the number of machines in Sky City increased by 14%.

Certainly the current outcome would have less of an impact on national problem-gambling levels than if they were opening a casino where one doesn’t currently exist, like Wellington.

“if you’re a problem gambler in Auckland, you’re probably already at SkyCity. If you don’t have a gambling problem, then you’re not going to develop one because the number of machines in Sky City increased by 14%.”
Phil, doesn’t that depend on supply of pokies & demand of pokie-fixated problem gamblers? If SkyCity has 1600 pokies, but regularly over 1600 punters willing to ‘play’ them at the same time, then they have a shortage of pokies; giving SkyCity 230 more pokies would enhance their revenue. And if SkyCity are not short of pokie machines at some times, why did they primarily demand extra 230 pokies in exchange for an offer to spend hundreds of millions on a convention centre (which is expected to lose money)?
MikeM – the artist’s impression seemed to indicate the convention centre would be 1 block closer to the waterfront and Queen St than the casino. Dunno if they will have extra pokies in the centre or the casino; presumably the latter.

The half-dozen-or-so times I’ve been inside the casino when visiting Auckland, I don’t think i’ve ever seen the pokies at more than half ‘occupancy’. Some of the tables (like the low-value balckjack and roulette) can get very busy. I wonder if the 230 is acutally a combination of pokies and other tables?

Anyway, a quick google suggests a slot machine pays for itself in less than a year. Even in a low ‘occupancy’ state, SkyCity are probably still nowhere near the point that marginal cost rises to meet marginal revenue. They may just be trying to cram more machines in the same space and better utilse their floor area.

I see the DPF has a Herald article which estimates 184 extra problem gamblers… the comments thread there is unusally helpful in trying to find where that number comes from.